What does the budget mean for SMEs

SME, Small and medium-sized enterprises

While the latest budget was heavily focused on social initiatives, it introduced several levers designed to reduce the compliance burden for small—to medium-sized businesses and drive change in the green space. It is a complex paper, and in this article, we have endeavoured to disseminate the information and present what is valid for you as a small—to medium enterprise.

The government has recognised that small to medium businesses spend much time on paperwork. To help ease this burden, starting from 1 July 2024, you can authorise your tax agent (like us) to lodge multiple Single Touch Payroll (STP) forms on your behalf. This change will streamline your payroll reporting process, making it easier and faster to comply with ATO requirements.

Previously, you might have been tangled up in regularly submitting these forms. By consolidating this process, you’ll save time and reduce the hassle of managing your payroll obligations. This means more time to focus on what you do best—running your business.

Another significant change is how the Australian Taxation Office (ATO) will handle income tax refunds. From 1 July 2024, the ATO will significantly reduce the use of cheques for issuing income tax refunds. Instead, refunds will primarily be processed electronically.

This shift to digital transactions is not just a move towards modernity; it’s also more secure and efficient. Electronic refunds will reach your account faster than cheques, reducing the waiting time for your money. To prepare, ensure your banking details are up-to-date with the ATO to avoid delays in receiving your refunds.

Extended time for tax amendments

Starting from 1 July 2025, small businesses will have up to four years to amend their income tax returns, an extension from the current two-year limit. This extended period gives you more flexibility and time to identify and correct mistakes or adjust your returns.

This is particularly beneficial if you experience significant changes in your business operations that affect your tax situation. Whether correcting an oversight or adjusting to new financial realities, you’ll have ample time to ensure accurate tax returns, potentially saving you from costly penalties or missed deductions.

To simplify things, you can streamline payroll reporting by allowing your tax agent to lodge STP forms on your behalf and ensure your bank details are current with the ATO to facilitate quicker electronic tax refunds starting from July 2024.

 

Immediate Asset Deductions for Small Businesses

You’re in luck if your business has an aggregated turnover of less than $10 million. You can take advantage of immediate deductions for eligible assets.

Immediate Deductions for Assets Under $20,000.
From 1 July 2023 to 30 June 2024, small businesses can immediately deduct the total cost of eligible depreciating assets costing less than $20,000. You can claim a tax deduction for these assets in the same income year you purchase and use (or install) them.

By deducting the cost of these assets right away, you reduce your taxable income for the year. The assets must be used or installed ready for use within the specified period and fall under the depreciation provisions. This doesn’t include capital improvements to buildings covered by different rules.

If your business is registered for GST, the asset’s cost must be less than $20,000 after subtracting any GST credits. If not registered for GST, the $20,000 limit includes GST.

The great news is that this deduction applies per asset. You can deduct each immediately if you buy several eligible assets, each costing less than $20,000. This can significantly reduce your taxable income and provide substantial tax savings.

An immediate deduction isn’t available for assets costing $20,000 or more. However, you can still benefit from simplified depreciation rules. These assets can be placed into the small business depreciation pool, where they will be depreciated at:

  • 15% in the first income year
  • 30% each subsequent year

The budget also provides some flexibility. The rules preventing small businesses from re-entering the simplified depreciation regime for five years if they opt out are suspended until 30 June 2024. This is particularly useful if you opt out of these rules to apply the temporary full expensing rules to specific assets.

The temporary full expensing rules, which allowed immediate deductions for assets acquired from 6 October 2020, will end on 30 June 2023. If you plan to purchase depreciating assets costing $20,000 or more, acting before this date is crucial to take full advantage of these rules.

To take advantage of these changes, consider acquiring eligible assets under $20,000 before 30 June 2024 to benefit from immediate deductions. Assess whether placing higher-cost assets in the depreciation pool makes financial sense for your business, keep track of your GST status, and ensure you’re applying the correct limits when claiming deductions.

The small business energy incentive and adjusted GST and PAYG rates

Green energy symbols e.g solar panel, wind turbine, fuel cell battery and the word TAX atop con stack.

The government has introduced new measures that could benefit SMEs, including the Small Business Energy Incentive and adjustments to GST and PAYG instalment rates.

The Small Business Energy Incentive is designed to help businesses invest in energy-efficient assets. You can receive an additional deduction of 20% of the cost of eligible depreciating assets that support electrification and more efficient use of energy. SMEs with an aggregated annual turnover of less than $50 million are eligible for this incentive. Up to $100,000 of total expenditure is eligible for this incentive, meaning you can get a maximum bonus deduction of $20,000.

While full details are still pending, the incentive is expected to cover a variety of assets and upgrades, including:

Electrifying heating and cooling systems. Upgrading to more efficient refrigerators and induction cooktops and installing batteries and heat pumps.

Some assets are not eligible for the incentive, including electric vehicles, renewable electricity generation assets, capital works, and assets that aren’t connected to the electricity grid and use fossil fuels.

To qualify, eligible assets or upgrades must be first used or installed and ready for use between 1 July 2023 and 30 June 2024.

In addition to the energy incentive, there are changes to the GST and PAYG instalment rates that could affect your business’s cash flow management:

GST and PAYG instalment amounts are adjusted based on GDP growth, known as the uplift rate. In 2022-23, the government reduced this uplift rate from 10% to 2%. For 2023-24, the uplift rate is 6%, instead of the 12%.

The adjusted GST instalment rates benefit businesses with an annual aggregated turnover of up to $10 million. Businesses with an annual aggregated turnover of up to $50 million are eligible for the adjusted PAYG instalment rates.

These reduced uplift rates mean that your GST and PAYG instalments will increase slower than they would under normal circumstances. This can provide some relief by reducing the immediate cash outflow.

To make the most of these changes, consider investing in eligible energy-efficient assets to take advantage of the additional 20% deduction.

Adjust your financial plans to reflect the new GST and PAYG instalment rates, ensuring you maintain adequate cash flow. Also, look for the detailed list of eligible assets under the Small Business Energy Incentive to ensure you’re making qualifying investments.

As mentioned at the top, this article is a helicopter view of the budget for SMEs. Business accounting and tax are complex and detailed, and we urge SMEs to obtain professional business accounting advice. North Advisory is a specialised business accounting and wealth management firm. If you have any questions or need assistance navigating these changes, please get in touch with us. We help you maximise these benefits and optimise your business’s tax strategy.

North Advisory offers businesses affordable and flexible bookkeeping services, comprehensive business tax advisory, SMSF management and wealth management services. Contact our team today for a no-obligation discussion.

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